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Sintex Industries: FCCB losses dampen profits

Oct 13, 2011

Sintex Industries has announced the second quarter results of financial year 2011-2012 (FY12). The company has reported around 25.3% YoY growth in sales. However, net profits have declined by 61.2% YoY.

Performance summary

Consolidated total income grows 25.3% YoY during 1QFY12. Growth was driven by both the plastics and textiles business divisions, registering a growth of 25.9% YoY and 20.2% respectively.

Operating margins contract to 17.7% during 2QFY12, from 18.6% during 2QFY11.

What has driven performance in 2QFY12?

The 25.3% YoY growth in Sintex's consolidated sales during 2QFY12 was largely driven by strong performance from both plastics and textiles business. The plastics business, which forms around 89.6% of the company's consolidated sales, grew by 25.9% YoY during the quarter. This was primarily led by the sub-segment of building material (prefabs and monolithic construction), where sales grew by 22.5% YoY during the quarter. Sales from the second sub-segment custom molding also registered a healthy growth of 29.0% YoY during the quarter.

Segment-wise performance (Consolidated)

2QFY11

2QFY12

Change

1HFY11

1HFY12

Change

Textiles

Revenue (Rs m)

948

1,140

20.2%

1,935

2,238

15.6%

% share

10.2%

9.8%

10.4%

9.8%

PBIT margin

13.6%

10.9%

12.6%

10.5%

Plastics

Revenue (Rs m)

8,282

10,431

25.9%

16,402

20,452

24.7%

% share

89.1%

89.6%

88.1%

89.2%

PBIT margin

16.7%

16.0%

15.1%

14.9%

Unallocated

Revenue (Rs m)

69

67

-3.3%

271

235

-13.3%

% share

0.7%

0.6%

1.5%

1.0%

PBIT margin

170.7%

NA

48.2%

NA

Total

Revenue (Rs m)

9,300

11,637

25.1%

18,608

22,925

23.2%

PBIT margin

17.5%

9.3%

15.3%

11.8%

Led by higher raw material cost, Sintex saw a 0.9% YoY decline in its operating margins during 2QFY12. The margins stood at 17.7% during the quarter. Sintex's staff costs declined from 11.7% of sales in 2QFY11 to 10.1% in 2QFY12. However, the raw material costs increased to 50.5% of sales during the quarter, from 48.9% in 2QFY11 leading to margin erosion.

Net profits of the company declined 61.2% YoY due to foreign exchange losses on FCCBs. However, after adjusting for this one time losses profits increased by 23.3% YoY. It may be noted that increase in interest costs by 56.4% YoY also impacted the profit growth.

What to expect?

At the current price of Rs 118, the stock is trading at a multiple of 5.4 times our estimated FY14 earnings. The current quarter results were a big disappointment on the profitability front due to FCCB losses resulting from rupee depreciation. Even the interest costs were higher in the quarter with the overall working capital cycle increasing due to delayed payments from overseas subsidiaries. However, the company commissioned a new plant in Chennai (custom molding) during the quarter. This is likely to support revenue growth in the future. Considering the current valuations and long term growth prospects we maintain our positive view on the stock.

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